Capital Gains
The profit from selling a capital asset (stocks, real estate, etc.) for more than its purchase price. Capital gains are classified as short-term or long-term based on holding period.
Capital gains are the profits realized when you sell a capital asset — such as stocks, bonds, mutual funds, real estate, or cryptocurrency — for more than your cost basis (generally what you paid for it). If you sell for less than your basis, you have a capital loss.
Capital gains are classified by how long you held the asset. Short-term capital gains (assets held one year or less) are taxed at your ordinary income tax rates, which can be as high as 37%. Long-term capital gains (assets held more than one year) receive preferential tax rates of 0%, 15%, or 20%, depending on your taxable income.
You can offset capital gains with capital losses from other investments. If your losses exceed your gains, you can deduct up to $3,000 of net capital losses against ordinary income per year, with any excess carried forward to future years. This makes tax-loss harvesting — strategically selling losing investments to offset gains — a valuable tax planning tool.
Related Terms
Short-Term Capital Gains
Profits from selling assets held for one year or less, taxed at ordinary income tax rates (10% to 37%). There is no preferential rate for short-term gains.
Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income.
Cost Basis
The original purchase price of an asset (plus adjustments like commissions and reinvested dividends), used to calculate capital gain or loss when you sell.
Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).